Who Needs Agencies?

Who Needs Agencies?

A social platform just says 'no' to Madison Avenue

Sept 20, 2010

- Brian Morrissey

The daily deal service, Groupon, which quietly started in Chicago in November 2008, is a sensation. In less than two years, it has grown to 29 countries, 230 markets and boasts 17 million subscribers who get daily offers on everything from leg-waxing sessions and amusement parks to restaurants. It's estimated to be on track to record $500 million in revenue this year and perhaps double that in 2011. Forbes has christened it "the fastest-growing company ever," boasting a $1 billion valuation.

Its success can be attributed to several factors -- and traditional advertising is definitely not one of them.

Groupon, in fact, whose marketing is essentially built into the product, has done all this without the machinery of Madison Avenue, either to build its brand with deal-seeking customers or to entice businesses to its marketing platform.

Groupon's approach "reflects a bit of the transformation of markets and the way in which advertising agencies have to respond," said Ed Cotton, director of strategy at Butler Shine Stern & Partners. Because the marketing appeal is built into Groupon's product, he explained, it doesn't have much need for what Madison Avenue specializes in: the creation of brand images and strategy, and distribution of them through paid media.

Groupon, which takes a percentage of the revenue generated, boasts an advantage in the world of branding: the social aspect of its service. Each day, a Groupon editor chooses a limited-time bargain at a steep discount that's e-mailed to subscribers. The deal "tips" (goes into effect) only when a certain number of people buy it. This helps encourage viral pass along (the service has grown so big that its deals tip over 95 percent of the time). The offers themselves are often for social activities -- eating out, renting bikes, going to a comedy club -- that also entice sharing.

Aaron Cooper, svp of marketing at Groupon, says there's no need to hire traditional marketers: the firm believes it knows how to market itself better than agencies.

"When you deeply understand your customer and product, you're going to be better, there's no doubt. There's no way that can be communicated by weekly phone calls. You just miss too much," said Cooper, who arrived at the company two-and-a-half months ago following five years in online marketing at Orbitz. (Groupon is growing so fast that Cooper notes he's been there longer than most of his colleagues.) At Orbitz, Cooper also focused on building in-house marketing capabilities without relying on outside agencies.

But unlike the wave of Internet juggernauts built on discovery and communication, like Google and Facebook, Groupon has not shied away from advertising, and its ads are ubiquitous on Google's ad network. According to Nielsen, Groupon served over 600 million U.S. display ad impressions in August. (The company won't reveal its online ad spending.)

Cooper, who calls Google "a huge partner," says they are not relying only on ad networks and self-service ad platforms. It has also inked deals with sites like IAC-owned Evite, which shows a Groupon deal when users respond to an invitation. And it courts national deals, such as a Gap promotion in August that saw 440,000 coupons redeemed and netted the company $11 million in revenue.

It's also riding the wave of earned media with a PR operation that includes its "Live Off Groupon" challenge, which came from Julie Mossler in Groupon's PR department. The winner, Josh Stevens, is trying to live off Groupons for a year. He's garnered 1,900 Twitter followers, nearly 8,000 Facebook Likes and, more importantly for building the brand outside the Web crowd, appeared on a Today show segment in May. The idea is to not only help build awareness of the service, but further cement its quirky brand image, said Cooper.

The question for Groupon is whether it can continue its meteoric growth with this playbook. Cooper said nothing is off the table, including more traditional branding approaches involving TV. The company faces a raft of competitors like Yipit, Gilt Groupe and especially LivingSocial, which has raised nearly $50 million in venture capital. (Groupon has raised $150 million.)

LivingSocial CEO Tim O'Shaughnessy said that such social platforms have altered the marketing playing field. For instance, he said, LivingSocial has already built four products that have attracted over 1 million users. "There's not a lot of agencies that can say that, if any," O'Shaughnessy said. "It's a core piece of how we evolved. We know how to reach consumers and reach them with the right messages."

Of course, history has shown that even fast-growing Internet companies sometimes need to take more traditional steps, especially as the competition heats up. Google never advertised -- until it ran a commercial during last year's Super Bowl.

"There comes a time when a brand becomes big enough that it needs ... to leverage the power of TV," said Cotton. "But they can grow quite a lot more by continuing what they're doing."